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Ford’s Global Strategy 2013 When Ford CEO Alan Mulally arrived at the company in 2006 after a long career at Boeing, he was shocked to learn that the company produced one Ford Focus for Europe and a totally different one for the United States. “Can you imagine having one Boeing 737 for Europe and one 737 for the United States?” he said at the time. Alan Mulally, CEO Ford

Due to this production strategy, Ford was unable to buy common parts for the vehicles, could not share development costs and couldn’t use its European Focus plants to make cars for the United States, or vice versa. In a business where economies of scale are important, the result was high costs. Nor were these problems limited to the Ford Focus – the strategy of designing and building different cars for different regions was the standard approach at Ford. (1) Ford’s long‐standing strategy of regional models based upon the assumption that customers in different regions had different tastes and preferences which required considerable local customizations. Americans, it was argued, loved their trucks and SUVs, whereas Europeans preferred smaller, fuel‐efficient cars. Notwithstanding such differences, Mulally still could not understand why small car models like the Focus or the Escape SUV, which were sold in 2006 Ford Focus USA 2006 Ford Focus UK different regions, were not built on the same platform and did not share common parts. In truth, the strategy probably had more to do with the autonomy of different regions within Ford’s organization, a fact that was deeply embedded in Ford’s history as one of the oldest multinational corporations. When the global financial crisis rocked the world’s automobile industry in 2008‐2009, and precipitated the steepest drop in sales since the Great Depression, Mulally decided Ford had to change its long‐standing practice in order to get its costs under control. Moreover, he felt that there was no way that Ford would be able to compete effectively in the large developing markets of China and India unless Ford leveraged its global scale to produce low‐cost cars. The result was Mulally’s “One Ford” strategy which (2) aims to create a handful of car platforms that Ford can use everywhere in the world.

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Under this strategy, new models – such as the 2013 Ford Fiesta, Focus, and Escape – share a common design, are built on a common platform, use the same parts, and will be built in identical factories around the world. Ultimately, Ford hopes to have only five platforms to deliver sales of more than 6 million vehicles by 2016. Ford had 15 platforms that accounted for Common platform sales

of 6.6 million vehicles. By Source: caranddriver.com pursuing this strategy Ford can share the costs of design and tooling, and it can attain much greater scale economies in the production of component parts. (3) Ford has stated that it will take about one‐third out of the $1 billion cost of developing a new car model and should significantly reduce its $50 billion annual budget for component parts. Moreover, because the different factories producing these cars are identical in all respects, useful knowledge acquired through experience in one factory can quickly be 2013 Ford Fiesta transferred to other factories, resulting in system‐wide cost savings.

2013 Ford Focus

What Ford hopes is that this strategy will (3) bring down costs sufficiently to enable Ford to make greater profit margins in developed markets, and be able to make good margins at lower price points in hypercompetitive developing nations, such as China, now the world’s largest car market, where Ford currently trails its global rivals such as General Motors and Volkswagen. Indeed, the strategy is central to Mullaly’s goal for growing Ford’s sales from 5.5 million in 2010 to 8 million by mid‐decade. © Cengage Learning 2015

2013 Ford Escape

***** 1. Why did Ford make different models to sell in different markets around the world? Ford has considerable experience selling cars in different parts of the world. Ford’s conventional view was that customising cares to local taste and conditions was important to be successful in different markets.  the case mentions the EU demand for smaller roads, and more fuel‐efficient car  it does not higher taxes on the fuel, the narrower roads and parking constraints in the ancient towns and villages of many EU countries.

 together, these often resulted in much higher running costs typically sold to middle‐ and working‐class customers. Ford might not be budget options but its target market could not afford high running costs as well as high purchase price compared to other options available. In the US, parking space was not a problem (apart from the old areas of cities such as Boston and New York) Fuel taxes were much lower than in EU American driver had a preference for comfort The needs for bigger‐engine cars in the north American winter These factors meant that small‐sized European designs were unlikely to be popular in the north American market. Ford did not seem to adapt its view of the markets and consumer preferences for more than half a century. Since the mid‐1970s, over a period of 40 years, a number of factor changed customer’s tastes. What were the main advantages of this strategy?  close to local market and market responsiveness 2. Why did Ford change its strategy to focus on costs? The global financial crisis of 2008‐2009 led sharpest fall in automobile sales since the Great Depression (1929‐1939). Ford was forced to change its long‐standing practices to get its costs under control Initially, ford needed to cut both development costs and component cost co remain competitive.  i.e. to price its car at a level where they would complete with rival models as well have sufficient margin  Ford estimated that it could reduce costs of development by 33% and reduce the $50 billion budget for components. Lower cost would also allow Ford raise profit margin in development markets, and to make good margin at lower price points in hypercompetitive developing market ( such as China) where Volkswagen and GM were leading Ford. The outcome of the focus on cost was Mullalluy’s “One Ford” strategy based on reducing the number of car platforms used to make car for different markets. 3. What are the main advantages of Ford’s cost‐focused strategy?

Under the “One Ford” strategy, models share a common design, a common platform, use many of the same components and are manufactured in identical factories around the world. As a result, Ford will expect to reduce the number of platforms from 15 to 5 yet maintain close to similar number of vehicles produced declining from 6.6 million to 6 million units) by 2016.The resulting cost saving will allow Ford to hold on its market share in developed markets (such as the US and Western Europe) Make inroads into the emerging car markets of China and other Asian and African countries where consumers are more price sensitive....